Church & Dwight Co., Inc. (CHD) Q3 2016 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and welcome to the Church & Dwight Third Quarter 2016 Earnings Conference Call. Before we begin, I've been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecasts. These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for the call, Mr. Matt Farrell, Chief Executive Officer of Church & Dwight. Also please limit during the Q&A, your questions to one initial and one follow-up. Sir, please go ahead. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay. Good morning, everybody. Thanks for joining us for today. I'll provide some color on the quarter and then turn the call over to Rick Dierker. When Rick is finished, we'll open the call up for questions. The Q3 was a solid quarter for our company. EPS exceeded our outlook, organic sales growth of 1.2% was in line with our August outlook of 1% to 2%. We would have been at the high end of the range if not for a far worse than expected result in our animal nutrition business which was an unexpected 70 basis points drag on the outlook. The quality of earnings was high this quarter. We expanded gross margin, we invested in higher marketing of 50 bps and SG&A was lower year-over-year. We overcame a high tax rate, a small product recall, and a big decline in our animal nutrition business and still beat our EPS outlook by $0.01. Our Consumer business delivered volume-driven organic sales growth of 2.5%, led by continued strong growth by our international Consumer business. In the U.S., our organic sales growth met our expectations, reflecting higher couponing as we communicated back in August. The good news is category growth was broad-based. Ten of our 15 categories grew in the quarter. Now, I'm going to say a few words about four of our categories. The laundry category continues to be healthy, growing 4% year-over-year, and our laundry business grew with the category. This is the sixth quarter in a row of laundry category growth driven by both the unit dose and liquid segments. In liquid laundry detergent, this quarter marked the 27th consecutive quarter of share growth for ARM & HAMMER liquid laundry. In contrast, our XTRA brand lost share in the quarter, as we continued to see deep competitive discounting. Similar to what we said in Q2, we expect XTRA net profits to increase year-over-year for full-year 2016, and we have plans to turn around that brand. Also in the liquid category, OXICLEAN grew share to 1.8%, driven by strong promotional support. As we have said before, we are committed to OXICLEAN laundry detergent. We are encouraged by the trial activity in this most recent quarter, and our repeat rate continues to improve. Turning to the unit dose segment, our unit dose products continued to gain traction and had some of the largest gains in the category. For the second consecutive quarter ARM & HAMMER unit dose grew twice the unit dose category growth rate. And our growth was driven by our bi-layer and dual chamber innovations. Most important, our unit dose business was equally driven by base and promoted volume, signaling a healthy balance. ARM & HAMMER unit dose grew 50 basis points to 3.2% share in the quarter. Similarly, OXICLEAN unit dose also grew share in the quarter and is now a 1.1% share. These are encouraging signs as we continue to go in the right direction. Finally in fabric care, the stain fighter category grew 3.2%. OXICLEAN grew consumption 7% and is the leading stain fighter in the additive category with a 48% share. OXICLEAN grew share 170 basis points in the quarter. The litter category continues to be very competitive with increased couponing. For the quarter, the litter category was up 3.7%, while our brands were flat in measured channels. Our shipments were up as our online litter business more than doubled. Long-term we have won in this category through innovation, which continues to be our focus. Now we'll talk about vitamins. The overall VMS category continues to show steady growth, up 3.8%. The gummy segment of VMS grew 10% in Q3, which includes both adult gummies up 14% and children's gummies down 5%. Our adult brand VITAFUSION had another good quarter, growing consumption 9.7% with the success of our new products. L'IL CRITTERS children's gummy had a great quarter and grew consumption 6.6% compared to a 5% decline in the category. This is the second consecutive quarter that we have outpaced the children's gummy category. Today the gummy form of the entire adult VMS category is 10%. It was 3% when we bought the business four years ago. VITAFUSION and L'IL CRITTERS are the number one brands, with shares of 28% and 30% in measured channels respectively. Adult gummies is where we are putting our focus. It is underdeveloped and will be the source of future growth for us. The last category I'll address is dry shampoo. This category grew almost 27% in Q3 after growing 26% in Q1 and 28% in Q2. The category in the U.S. is now over $100 million with the potential to be a $300 million category if we match the historical category growth experienced in the UK where the product originated. BATISTE is the number one brand in the U.S. with a 23.6% share. The BATISTE brand is expected to be one of the fastest-growing brands in the future for us. Now I'm going to talk about International. Our International Consumer business has emerged as a growth driver for Church & Dwight. After growing 3% to 4% annually from 2011 to 2014, our International business grew 8% in 2015 and is expected to hit 9% in 2016. BATISTE is only part of the story. Many brands have contributed to the success story. We have enjoyed stellar growth in Europe, Canada, and Mexico this year, while our export business continues to open new doors for our brands. We look forward to steady, strong growth from the International business in the future. Our Q3 total company organic growth was held back by significantly lower volume in our animal nutrition business, which reflects depressed milk prices. When we began the year we expected full-year growth from this business to be 1% to 3%, and now we're expecting a 9% decline on a full-year basis. That is quite a reversal. Thanks to the strength of our Consumer business, we expect to deliver 8% EPS growth and 3% organic growth for full-year 2016. We said we're early in our 2017 planning process; we'll say more about that in February, but for now we again expect high-single digit EPS growth next year. Next up is Rick to give you details about third quarter results, the outlook for Q4 and the full-year. Richard A. Dierker - Church & Dwight Co., Inc.: Thank you, Matt, and good morning, everybody. I'll start with EPS. Third quarter reported EPS was up 4.4% to $0.47 per share, compared to $0.45 in 2015, which was $0.01 ahead of our $0.46 outlook. Reported net sales were up 1% to $871 million, organic sales growth of 1.2% was in line with our 1% to 2% range, but at the lower end, dragged down by the 70 basis point hit from our SPD business. When we spoke to you in August, we assumed a 3% decline in that business versus the 11% decline we experienced. Now let's review the segments. Consumer Domestic's organic sales increased by 0.8% in the quarter. Volume growth was solid at 2.1%, offset by 1.3% drag from pricing. Now we expected approximately 1% organic for that business as we had anticipated the incremental couponing to support our new products and Q4 promotional shifts. As mentioned, we were a little below 1%, as we also got hit with returns due to a small product recall from our Orajel business. I know you guys are a fan of stacked numbers. So I wanted to call out our volume results for Q3. Of the 3.5% stack organic, all of it is volume. Looking ahead to Q4, we expect organic sales to be 2.5% for the Domestic business. That translates to maintaining our full-year organic sales outlook of 3%. Consumer International organic growth was up an impressive 12.1%. BATISTE continues to build depth of distribution in many countries, OXICLEAN and ARM & HAMMER continue to expand in North America and TROJAN continues to do well in Latin America. We're raising our expectation for the full-year organic growth from 7% to approximately 9% for the International business. To recap, 3% for the Consumer Domestic business for the full-year and 9% for the Consumer International business equates to 4% full-year growth for the global Consumer business and we are really pleased with that result. For our SPD division, organic sales were down 11.5%. Milk prices continue to be low due to an excess global supply of milk and weak exports due to a strong dollar. As said in the past, we like this business but we do experience these cycles from time to time. On the bright side, the industry does forecast a slight improvement in milk prices in 2017. Turning now to gross margin, our reported third-quarter gross margin was 45.4%, a 60 basis point increase from year ago, primarily due to lower commodities in our productivity programs. Q3 gross margin benefited from lower commodities worth 40 basis points, productivity programs and lower manufacturing costs worth 60 basis points. We also had 30 basis points from higher margin acquired business and going the other way we had a drag of 50 basis points from price/volume mix, as we had the higher promotional investments, largely the couponing we discussed earlier, plus we had a 20 basis point drag from currency. Now moving to marketing, we increased marketing spend by 5.8% year-over-year. Marketing as a percent of net sales increased 50 basis points to 11.3%. SG&A as a percentage of net sales was 11.6%, a 30 basis point decrease from the prior year. This decline was primarily due to the timing of R&D spend and lower litigation costs. Now on to operating margin, the reported operating margin for the quarter was 22.5%, which is 40 basis points higher than the prior year, and the other good news is as a proxy for cash earnings, our EBITDA margin was up to 26% in the quarter. Next income taxes, our effective rate for the quarter is 35.6% and we continue to expect our full-year rate to be 35%. Turning to cash, we had a really strong cash flow quarter. On a year-to-date basis we have generated $495 million of cash from operations, an $86 million increase from the same period a year ago, primarily due to higher cash earnings and improved working capital. So in conclusion, the third quarter highlights include a strong consumer organic growth rate of 2.5%, increased gross margin expansion as we exceeded our outlook by $0.01, even after absorbing a hit from the SPD revenue decline and a small product recall. Turning now to the fourth quarter outlook, we expect Q4 organic sales growth of approximately 1% to 2%. The Consumer business is expected to pick up steam in the fourth quarter at 2.5% organic growth while we expect the dairy business to be down 13% and a drag on the total company organic sales growth. We expect fourth-quarter earnings per share of approximately $0.42, compared to $0.41 a share a year ago or a 2% increase year-over-year. For context, the significant year-over-year decline in SPD revenues equates to $0.01 drag to the EPS line. And we also have a higher tax rate that equates to about $0.01. You may recall the Q4 2015 tax rate had the full-year R&D credit all in one quarter. Turning to the full-year, we now expect organic sales growth to be at the lower end of our 3% to 4% range, which reflects the previously discussed headwind from our Specialty Products Division. We continue to expect gross margin expansion of 110 basis points due to continued lower commodity costs and greater distribution efficiencies. And we also continue to expect 60 basis points of full year operating margin expansion and to deliver 8% EPS growth. Finally, we now expect $650 million of operating cash flow and $50 million of CapEx for the full year. This equates to $600 million of free cash flow, which represents over 125% free cash flow conversion. Now, Matt and I will open it up for questions.

Thank you. Our first question is from Jason English with Goldman Sachs. Your line is open. Jason English - Goldman Sachs & Co.: Hey, guys. Thanks for the question. I appreciate it. Richard A. Dierker - Church & Dwight Co., Inc.: Hey, Jason. Matthew T. Farrell - Church & Dwight Co., Inc.: Hi, Jason. Jason English - Goldman Sachs & Co.: Hope all is well. A quick question on margins, I know we usually have to wait for the Q on this, but can you give us some of the color in terms of the gross margin bridge, the puts and takes that drove the increase this quarter? Matthew T. Farrell - Church & Dwight Co., Inc.: Yes, sure. I tried to do that in my script the last few quarters. But continued improvement from commodities was worth 40 basis points. Productivity, manufacturing improvements was worth 60 basis points. Negative price/volume mix was a drag of 50 basis points, and that's largely the couponing that we talked about – and that's for the whole company. Acquisitions was worth 30 basis points higher margin businesses and then a drag of 20 basis points for FX. Now, as you know, the commodity benefit will start to continue to go down and that's in our expectations for Q4. For example, commodities by itself, Q1 was a benefit of 120 basis points, Q2 70 basis points, Q3 40 basis points and we expect 10 basis points in Q4. Jason English - Goldman Sachs & Co.: That's helpful. Thank you. I know we're not going to get into a lot of detail on 2017 yet, but you did put some numbers out there this morning, and in there you talk about ongoing progression in gross margins expected for next year. What are some of the puts and takes that give you confidence in your ability to get there, given that as you just pointed out, the commodity tailwind should be dissipating? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah, I think you're exactly right. In general for commodities next year we think it's pretty benign with the exception of surfactants which is going to be up we believe in 2017, but remember, we have our evergreen productivity program and that's really the driver behind gross margin expansion all the time and sometimes that's masked by the commodity impact. Jason English - Goldman Sachs & Co.: Got it. That's helpful, guys. I'll pass it on. Richard A. Dierker - Church & Dwight Co., Inc.: Okay, Jason.

Thank you. Our next question is from Kevin Grundy of Jefferies. Your line is open.

Hey. Good morning, guys. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Kevin.

Matt, I wanted to start on the SPD business, and I guess given what milk prices did there a disappointing result, does a quarter like this give you any pause with respect to the fit in the portfolio. I think your commentary in the past has been around a relatively comparable margin profile, somewhat attractive return on operating asset kind of business, but I guess the rebuttal would be it seems to be non-core and arguably a distraction. If investors wanted exposure to dairy prices, they could do so by investing in other assets. And I guess more fundamentally, a concern could potentially be that from one quarter to the next you could be in a position where you're faced with pulling back on investment behind a mega brand as milk prices tank in order to hit the guide on the quarter. So if you can revisit I guess some thoughts there and whether a quarter like this gives you any pause that'd be helpful. And then I have a follow-up. Thanks. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah, Kevin. That's a good question. I'm sure a lot of people would question their hearts because the business had such a falling off of this quarter versus even our expectations when we spoke to everybody in August. But we do take the long view on this business, so we don't look at it as simply a – the dairy business that it is today, and it is one-dimensional. It's largely doing business in the U.S. and largely in dairy, but we've changed the focus of that business from simply dairy to animal productivity and what we did was we bought this business a year and a half ago called Vi-COR, early 2015. And what that did was that got us into poultry, swine and cattle, and also some international products. So it got us exposure to other species. So we want to even out the cycles over time by growing into other species and also with more acquisitions. So you might say well, if I want to invest in an animal productivity business, I can go to Zoetis or one of these other companies. And I would say, look, this is an asset light business. We have the good fortune of the legacy business of this company, which is sodium bicarbonate, having morphed out of that into animal productivity. And we have a lot of science in that part of the company, which is probably not well understood, PhD chemists, veterinarians, et cetera. So we have a great nucleus of people to build upon. And because it's asset light, because you know we're a cash driven company, has all the characteristics we want to grow over time. And the big macro is you got 7 billion people today, going to 9 billion in 2050. So it's a long answer, but it probably deserves a long answer considering the fact that it influenced the numbers this quarter. Now, looking ahead to 2017, the good news is the milk prices are forecasted to start recovering next year, so it's not going to be as bad next year as this year, so we would expect some growth out of the Specialty Products business in 2017. But it's certainly a legitimate question, Kevin.

Okay. Thanks, Matt. And a follow up here, the Consumer organic sales guidance for 4Q, if I'm not mistaken, is 2.5%, and even – so when I take a look at the comps, that still implies some slowing in the fourth quarter. Can you talk a little bit about what's driving that. The Personal Care number was a little bit weak in the third quarter. I don't know if there is an expectation that persists, and then what exactly is driving that dynamic. Is there more couponing and heavier trade spend given what's going on in laundry right now, where that's ramped. So just if you could help sort of help me understand a bit what's driving the two-year average slowdown into the fourth quarter as well. Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: Sure, Kevin. It's Rick. Now remember, a couple things here. We had a great VMS second half in 2015. We had recovered in a big way from all the cuts we experienced in the back half of 2014 and early 2015. So the back half was like 5.5% growth, for example, and the first half was flat. So to some degree, the comps were influenced by – the slowdown was influenced by that. That's number one. Number two, we do have some incremental couponing to drive trial. That was largely a Q3 event, but we do have a little bit in Q4. And in general, Q4 going to 2.5% organic is a predominantly volume driven result. And there's a little bit of price mix in there too, but Personal Care growth, which was a little bit negative in Q3, is expected to recover and be slightly positive in Q4 as well. So hope that helps. That's a little bit more color.

Okay. Thank you.

Thank you. Our next question is from Bill Schmitz of Deutsche Bank. Your line is open.

Hey, guys. Good morning. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Bill. Richard A. Dierker - Church & Dwight Co., Inc.: Hey, Bill.

A couple things. What's the endgame with all this cat litter promotional activity, because it's not like a super high return category. I'm just not sure why – it seems like a zero-sum. So like why do you think the activity is so pronounced now and how long do you think it will last, and maybe you think it abates a little bit as commodities start to firm or even rise a little bit going forward? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. Bill, it's a good question. We've been on the sidelines with respect to the amount sold on deal. So we're not the offender, but there's been a tremendous amount of couponing by the other two players in litter. And obviously, they're promoting some of the new products that they have. But for our part, shipments were up in the quarter, and our new product, which is MICROGUARD, is the second highest repeat rate in litter only behind the original CLUMP & SEAL. So Nestlé, which is Tidy Cat, they're the big winner this past quarter, and we lost some share. So our view is that when we have innovation -- and you know us, we always do have something coming -- that's the time to promote heavily. But we're not part of the war right now.

Got you. So when you talk about the mix impact to the gross margin line, it wasn't necessarily in cat litter? Matthew T. Farrell - Church & Dwight Co., Inc.: Well, look, cat litter was up for the quarter year-over-year sales-wise, and as we also said that we did pretty well in the online class of trade as well. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. And remember we said price/volume mix was a 50 basis point drag. That's predominately price in the quarter, predominantly couponing. Matthew T. Farrell - Church & Dwight Co., Inc.: Mostly in the laundry... Richard A. Dierker - Church & Dwight Co., Inc.: Mostly in the laundry. Matthew T. Farrell - Church & Dwight Co., Inc.: ...category. It's not in litter, that price hit.

Okay. Got you. And then, just, it's kind of a new business you guys haven't really talked about, but this export business. I mean, is it as simple as that like you kind of load up like a 40-foot container and ship a bunch of products to some country where you don't have a discrete sales force, or am I missing...? Matthew T. Farrell - Church & Dwight Co., Inc.: You obviously had a college job on the docks. Now look, we're doing what a lot of businesses did 20 years, 30 years ago. We have – it's not just export, it's the international team is extremely strong. We have a strong management team. Have some new general managers in a couple countries and we've been able to grow international through a combination of local brands and U.S. brands. In North America, ARM & HAMMER and OXICLEAN and TROJAN are doing really well in Canada and Mexico, even a more recent acquisition, remember those vaginal moisturizers we bought, REPHRESH and REPLENS doing well in Europe. But in export we've been adding people and resources in Central America and in Southeast Asia. That opens up a lot of new countries for us. And yeah, sure I mean, as far as the manner in which you ship, certainly we're shipping to distributors around the world, but we've got a terrific distributor network out there and that's one of the strengths of that business.

Got you. And then one last quick one if I could sneak it in. Has there been any change in the industry about what Henkel is doing with All and to a lesser extent Wisk. I guess the planograms get set again in March for the category. I mean, are you hearing any rumblings there? Matthew T. Farrell - Church & Dwight Co., Inc.: No. Look, this is – the time of year is fall when you're doing all your line reviews and you're not going to really find out about planograms until Jan, Feb, March, in the spring. So that's still a jump ball.

Okay. All right. Thanks so much. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay.

Thank you. Our next question is from Bill Chappell of SunTrust. Your line is open.

Thanks. Good morning. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Bill.

Just a follow-up on Bill Schmitz's. So if you're not – couponing is not really around litter, is it – and we're talking about new products that it is focused, is it primarily around pods? I mean is that the big focus? Matthew T. Farrell - Church & Dwight Co., Inc.: No. No. No. Yeah. No, here is the way to think about it when you think about laundry. So, liquid laundry detergent had the highest percentage sold on deal as a category, in the past two years and in Q3. We were significantly under that. So we have not ramped it up. We've had steady amount sold on deal for ARM & HAMMER liquid laundry for the past couple of quarters. The same is true for unit dose. My remarks what I said, was that unit dose is growing and it's balanced between the on deal and base. So where the couponing is for us is in OXICLEAN. So OXICLEAN as you know, we launched a couple years ago. And then Persil came on the scene, then we went sideways for a while. So we've got to work a lot harder to get trial. And it's been working for us, but it's been costly. So the couponing that we're referring to is largely for OXICLEAN in laundry.

Okay. And then, Rick, on the gross margin bridge you walked through, where would I – I mean, both on kind of the easier comparisons from the vitamin start-up and then also, I assume there was a mix benefit from the decline in Specialty, that that would have actually helped gross margin. Is that right? And would that fall in – where would that fall in, in that bridge? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. You're exactly right, Bill, on both counts. Well, remember the VMS start-up expenses really did start to dissipate as we got into Q3 and Q4 a year ago. Those were predominantly even more help in Q2. And remember, we had 130 basis points in Q2 a year ago – last quarter, as a manufacturing benefit. This quarter it was only 60 basis points because we – those start-up expenses did dissipate a year ago. As far as mix for actual division mix? Yeah, you're right. The decline in SPD probably threw off around, I don't know, 10 basis points, 15 basis points, and that would be the mix line.

Okay. And then last one for me. Matt, I guess, in two out of the past three years, I think, you've done ASRs for your shares, and just because cash was sitting on the sidelines and it was a good use of it. Why just this authorization today and then in kind of your initial guidance for next year of high single-digit EPS growth, is there an assumption of a lower share count or is that not factored in yet? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. I'll take that, Bill. Generally, we've done, in the past few years between $200 million to $400 million of share buyback. And our authorization – we only had about $130 million left. And so just typically this year as we do our planning cycle, we go to the board and say, hey, here's our refresh for our share authorization. In the last two years we've done $500 million. We're doing $500 million again. So that's kind of a consistent approach. It doesn't mean we're going to do $500 million. I will say that if – we will be selective when we – depending on what the share price is, to either ramp that up or ramp that that down. But we do have an assumption of share count in our plan and we'll go through that probably in February.

And ASRs are still possible? Richard A. Dierker - Church & Dwight Co., Inc.: ASRs are possible. The 10b5-1s are also possible. It just depends.

Sounds good. Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: Okay.

Thank you. Our next question is from Stephen Powers of UBS. Your line is open.

Great. Thanks. Good morning. Matthew T. Farrell - Church & Dwight Co., Inc.: Hi, Steve.

Hey. So just to go back again to Bill Schmitz's litter question and just carry forward the logic of your answer, you might not be the primary actor today. But if you've always got something new coming to promote behind, it would follow that you've probably got something new coming in cat litter. And therefore might that not be just the catalyst for the current battles to continue? Or is – I guess to Bill's question, is there something that breaks the cycle? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. Hey, Steve, part of it is we believe innovation wins. At the end of the day the product sells itself. And so you have to do trial, you have to do everything else to promote your product and get it in the hands of consumers. But at the end of the day our belief in litter and that's why we didn't even exist in the 1990s in litter and we're up to the number two brand in litter today – is it's innovation. And so all this price competition is what it is and we're kind of holding our own. Sales are slightly up in the quarter despite all this amount sold on deal and couponing. But we believe innovation trumps all of that.

Okay, fair enough. And I know the pressures that led to the lower guidance this quarter were really Specialty Products related. But just taking a step back and listening to the full slate of HPC companies that have reported so far, it seems like demand trends remain broadly challenged. Competitive pressures are rising and they are rising certainly more so in certain pockets. But broadly, they are rising. And deflationary benefits are turning into inflationary pressures as you look forward. And all together, that's not really a great combination. So I guess, I'd just love your perspective on that, again, broadly speaking. And then specific to your business, I think how those dynamics impact laundry is probably the most critical factor as you think about 2017. So if there's a way for you to focus your comments on how they are shaping your 2017 planning in that category specifically, that would be great as well. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. Steve, this is probably a better question to ask first week of February because then we will be talking about what innovation we have by category for next year because as you know, the CPG business is a shelf space game. So the more shelf space, the more market share and you need innovation to bump the other guy off the shelf and take more share and get more facing. So it's an innovation story frankly, for 2017. And that's why we would have the confidence to say hey, we're going to hit our evergreen model again in 2017. Your larger question might be about the economy. And of course we see everything that you see. Unemployment is pretty steady but GDP is only 1.5% and gasoline prices creeping up, healthcare costs noticeably increasing for consumers and a median household income around $51,000. So that is the consumer. So obviously, that's hitting the consumer in the pocketbook. So it's – I wouldn't say it's the best outlook for the consumer. But from our point of view, we think that we have so many different ways to win here. We have – we've got 10 brands. We got a great International business. And Specialty Products has its ups and downs, but that will be back next year. So we sort of have a 12-cylinder engine. As we showed in this quarter, if some of them are misfiring, others will. And we are able to hit our numbers. So we aim to hit the numbers again next year, just as we did this year. Richard A. Dierker - Church & Dwight Co., Inc.: And, Steve, just want to add to that is – Matt had the commentary. But laundry category up 4%, still strong; vitamin category, up 10%, great tailwind; BATISTE category up 20%. So there's a lot of good things happening despite in some other categories where there is more competitive pressure.

Yes. Okay, that's all fair. That's all fair. And I may have missed this, but did you call out any early indication on the stock option compensation accounting change and how that's going to impact your tax rate and earnings algorithm next year? Richard A. Dierker - Church & Dwight Co., Inc.: No, we haven't done it yet. It's a pretty simple calculation but we'll probably do that next quarter, give you guys an outlook.

Okay, thanks. Richard A. Dierker - Church & Dwight Co., Inc.: On that specific piece of it.

You got it. Thank you.

Thank you. Our next question is from Joe Altobello of Raymond James. Your line is open. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Hey, guys. Good morning. I just wanted to go back to International, and looking at the hockey stick that you guys alluded to earlier beginning in 2015 and now 2016 in terms of organic growth, I'm trying to tease out – I don't know if there's a way to do it, how much of that growth is coming from sort of like-for-like same-store sales, and how much of that is coming from expanded distribution of certain brands? Matthew T. Farrell - Church & Dwight Co., Inc.: You talking about country by country now...? Joseph Nicholas Altobello - Raymond James & Associates, Inc.: No, no, just in general, just in general. Yeah, the 9% you're looking at today. How much of that is a like-for-like growth number? Richard A. Dierker - Church & Dwight Co., Inc.: Yes. The predominant of that is like-for-like growth. We were in existing countries. We are doing depth of distribution for BATISTE. ARM & HAMMER is doing great in Canada and Mexico. So it's an existing – and it's in our existing footprint. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah, Joe. It would be the export business that would be new doors, new shelves, new countries. That's the expanding piece of it. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. So in terms of the impact on the P&L, what's the margin impact from that faster growth in International? What's the drag? Richard A. Dierker - Church & Dwight Co., Inc.: Why do you think there's a drag from that, Joe? Joseph Nicholas Altobello - Raymond James & Associates, Inc.: I would just assume there would be a drag. I would assume your Consumer Domestic business would be a more profitable business. Is that a wrong assumption? Richard A. Dierker - Church & Dwight Co., Inc.: Right. Remember, as we are growing internationally, a lot of those sales, remember, are Personal Care in nature versus a Household in nature. So yeah, we have Household Products in Canada and Mexico. But export business is predominantly more like a BATISTE or a Femfresh, which is Personal Care margins. So you are right, it has a better distributor margin, so maybe at the net you have a lower number, but it's on par because it's PC brands. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. And then, secondly, on laundry, you mentioned 4% category growth despite pretty significant couponing going on there. How much of that is coming from the base liquid business and how much of that is from unit dose and people using more product in the unit dose category? Matthew T. Farrell - Church & Dwight Co., Inc.: The unit dose is the bigger grower of the two versus... Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Yeah. I'm just thinking – how much is the base of the business up? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah, let me see if I have the liquid – talking about how much did the liquid category grow for example. Is that what you are asking? Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Yes, exactly, because you have obviously seen a lot of companies talk about using two and three units per load, which is obviously driving volume growth. Richard A. Dierker - Church & Dwight Co., Inc.: Yes, we think most of it is volume growth, Joe, but we'll have to circle back and give you the number specifically. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay, no problem. Thanks, guys.

Thank you. Our next question is from Caroline Levy of CLSA. Your line is open.

Thank you and good morning. I noticed four of your 10 power brands had share gains. That seems to be a number that's coming down over time. And just wondering what gives you – or where would you expect that number to be a year from now? Obviously, the goal is 10 out of 10, but what do you believe you can change to make that a different number? Matthew T. Farrell - Church & Dwight Co., Inc.: Yes, we've had four this quarter, four last quarter. And as you know, we are more transparent than other CPG companies in that we call out our brands and we give ourselves a report card and let our analysts and investors know as well. So the four that were up were, BATISTE, VMS, OXICLEAN and Nair. So you'd say, okay, what about the other six? So one was flat; that was ARM & HAMMER. So we had growth in laundry, but that was offset by litter. So if you said, is there one that you would expect to improve next year, yeah, it would be ARM & HAMMER. So four would become five. So then you say, what are the other ones? The other ones would be TROJAN. So TROJAN, we had lost some share in measured channels, but we have strong growth in untracked channels, and that will continue to be probably a bigger part of the discussion measuring brand growth in measured channels versus all-in, which is harder to get your arms around. XTRA is certainly one that we've been suffering because of deep competitive discounting. So have been more or less on the sidelines there. So that one, we expect to turn around and obviously, it's pretty obvious what that's going to take. Orajel, there has been some pressure from private-label but we have an improved product offering that's coming out in Q4 to distinguish ourselves again further from private label, so we hope that's going to have a positive impact. FIRST RESPONSE, the issue there is we have some retailers experimenting with the split between branded and private label. And SPINBRUSH last quarter, adult grew 10% and kids was soft. This quarter it's the reverse. Kids was way up and adult was soft. But the business grew, just not at the same pace as the category. So yeah, it's a mixed bag. If you said what would be a good score? Every quarter would be, we'd say six. If you can get six out of 10 every quarter that would be fantastic. I think stellar would be seven to eight. But nine to 10 is aspirational, Caroline.

Got it. Yes. Jumping to International, if you're guiding to 9% sales growth for the year, which I think you are, that would be a big slowdown in the fourth quarter, is there something there? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, Caroline. We've incorrectly called this for two or three quarters. We kept on thinking International would come back down to earth and be mid-single digits, and I think we just maybe called it a little too early, and so this is really just the reality. The business is a great business, it's, we think, going to grow mid-single digits for a long time. On the edges, Europe is slowing down a little bit and Australia as well. But in general, 5% – 4% or 5% in Q4 is still a solid growth number. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah, and we should expect long-term that if we're calling 3% for the company that we would expect the International business to be higher than that year-after-year.

Got it. And then lastly, it's a little more detail, but you've said a lot about laundry, but I'm asking if you could tell us a little bit more about specifically what you think the acquisition of Sun might do, what you actually see, if you're seeing anything yet out of Procter, (39:10) are they stepping up their promotional activity. What's changing there? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. I can't take a swing at that one, Caroline. I wouldn't comment on what's going on with Henkel and Sun. I mean, they just closed the acquisition and – but I haven't seen anything different as far as discounting goes. They've been discounting heavily all year long, Purex and Sun. So, there's been no change to that since the acquisition.

Okay. Thanks a lot. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay, Caroline.

Thank you. Ladies and gentlemen, also I'd like to remind you to please keep your questions to one initial question and one follow-up. Our next question is from Jason Gere of KeyBanc Capital Markets. Your line is open.

Okay, thanks. Thanks for squeezing me in. I guess, some CPG companies have been talking about seeing some retailer destocking. I was just wondering is there anything that you've been seeing in any of your FDM customers at this point? Matthew T. Farrell - Church & Dwight Co., Inc.: No. I mean, you do hear that from time to time over the years. But I don't think that ever happens. I think the retailers are as focused on working capital as anybody else. So I think they run pretty tight ships. So it's unusual to have a situation where a retailer is overstocked and they're cutting back on their inventories.

Okay. And then the last question. I know you mentioned TROJAN before. Just been seeing some of these articles out there talking about millennials don't like condoms. So I was just wondering how do you respond to that in terms of growing that business, and what are you seeing on your end? Matthew T. Farrell - Church & Dwight Co., Inc.: Look, there is always going to be a certain percentage of the population that doesn't enjoy sex with a condom. But that's been a great business for a long period of time where we've got a 75% share. And being the big dog in the category, it's up to us to continue to promote safe sex and compliance.

Okay. That's a good answer. All right. Thanks a lot, guys. Matthew T. Farrell - Church & Dwight Co., Inc.: All right. See you.

Thank you. Our next question is from Olivia Tong of Bank of America. Your line is open.

Great. Thanks. So, in Q4, you're looking for a 1% to 2% organic sales growth. So obviously implied in that guidance is a potential that there could be acceleration from Q3. So can you talk about what gives you confidence in seeing that potential acceleration, are there incremental programs going in place? Obviously, you've got a little bit of a stepdown in comps, but that didn't quite help that much in Q3. So can we talk through that first please? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. Sure. It's a couple things. Number one, we don't have the tactical (41:54) couponing on OXICLEAN to the same degree that we did in Q3. We don't have the impact of the Orajel product returns/recall. On a positive note, our vitamin business and our laundry business has some promotions in Q4 that some of them were in Q3 a year ago. So we feel pretty good about the 2.5% that we called for the Consumer Domestic division. That's probably where your head is around

Perfect. Thanks. And then just on the dry shampoo, you guys have talked a little bit about the $300 million opportunity if you can get to the UK level. So can you talk about the similarities you see between the two markets? And then how much of that growth that you've seen so far is new distribution versus the underlying strength within the category? And if it does continue to grow at these levels, what about the competitive threat from others entering the category and potentially chipping away at your share? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. Good questions. So here is the way to think about it. There are about 60 million people in the UK and in U.S. dollars the consumption of dry shampoo is about $60 million. So when we look the U.S., we say, hey, we've got 335 million people in the U.S. were we to have a similar use consumption in the U.S., you'd a $300 million category. So it is as simple as that. As far as where is the growth coming from, it's not simply – it is new distribution, but it's higher consumption. The category continues to grow and the good news for us is that the category is growing rapidly and our share keeps expanding. So our share expanded from Q2 to Q3 in a category that's growing rapidly. And what we have going for us is that, BATISTE is viewed as a European brand, number one. And number two, its efficacy is far better than anything else that's on the market. So it's really product performance is what's winning. So people who have not used our product and then switch to BATISTE, they don't go back. So it's – we're not concerned about other entrants. There are a lot of people in there already, Your Mother's, TRESemmé, et cetera. So there's plenty of big dogs in the category. So we certainly like our chances. We're number one dry shampoo globally not just in the U.S.

Got it. Thank you.

Thank you. Our next question is from Rupesh Parikh of Oppenheimer. Your line is open. Rupesh Parikh - Oppenheimer & Co., Inc. (Broker): Good morning, and thanks for fitting me in. Most of my questions are answered. But one I wanted to ask on the M&A front. So clearly in the public markets we've seen some of the froth come out of consumer staples valuation. I was just curious, as you guys are looking out there, are you seeing better valuations, better opportunities out there in your M&A search? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah, that's a hard one to answer. I wouldn't say I can make any sweeping comment about multiples going up or down. As you know, we are an acquisitive company, so anything that is for sale in CPG, 99 out of 100 times we will get the book. But I wouldn't say that the market has peeled off or gotten any worse. Rupesh Parikh - Oppenheimer & Co., Inc. (Broker): Okay. Great. And then going back to your Specialty Products division, clearly the dairy market challenges has been an issue weighing on that business are there any other competitive dynamics at play in terms of the weakness that you've been seeing? Matthew T. Farrell - Church & Dwight Co., Inc.: No, that's good question. So it's not a function of losing share. It's entirely due to demand. The interesting thing about that business is that once a dairy farm starts using your products and particularly the ARM & HAMMER, so a lot of our products we sell under the ARM & HAMMER name and it creates a lot of weight that goes with that. So once you are with the producer, they are going to stick with you. So it's not switching or share, it's just purely demand. Rupesh Parikh - Oppenheimer & Co., Inc. (Broker): Okay. Great. Thank you.

Thank you. Our last question is from Nik Modi of RBC Capital Markets. Your line is open.

Yeah. Thanks. Good morning, everyone. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Nik.

Just two quick questions. Hey, guys. Are you guys seeing any activity with the retailer kind of prompting more promotional activity on behalf of the suppliers, meaning kind of the, what I call the retailer reach back given some of the traffic issues they're dealing with in the face of the economy, and also e-commerce? That's the first question. And then the second question is just thinking about the International business. What's the vision and the strategy on that business. I mean, are you going to take kind of like a Clorox approach and just focus on a couple of countries or do you believe that you have some more white space opportunity to expand your footprint? Matthew T. Farrell - Church & Dwight Co., Inc.: Yes. Let's take the International one first. So we have a business in Mexico and Brazil, so we'd like to go where the people are. So there's over 100 million people in Mexico and there's 200 million people in Brazil. So those would be a focus for us. And then there are countries we're not in, like Germany for example, which is the largest, strongest economy in Europe. So longer term we'd say, yes, that's a place we'd want to be in. And then export is one that is just a fountain for us because we have found that our products do travel well and we have built an export team. We have a great leadership there and we think the sky is the limit with respect to driving our product internationally. So I think that's sort of the view with respect to International, Nik. That's why we're so positive about it. Your front end question was are we seeing more asks on part of the retailers?

Yes, just generally speaking are you seeing more kind of promotional activity because the retailer is kind of pressing on the suppliers? Matthew T. Farrell - Church & Dwight Co., Inc.: No. I would say no more than in the past. Our retailers, they are in a very competitive business, obviously but I wouldn't say there's any trend that we've experienced.

Perfect. Thanks, Matt. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay.

Thank you. At this time I'd like to turn it back to Mr. Farrell for closing remarks. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay. Thanks, everybody for joining us today, and we'll talk to you again in February.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may now disconnect. Everyone have a great day.